(loss)/profit before taxation (47,462) 7,386 252,789 9,225 ... · taxation has been provided at the...

- 1 -

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this announcement, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this announcement.

ORIENT OVERSEAS (INTERNATIONAL) LIMITED

東方海外(國際)有限公司 † (Incorporated in Bermuda with Limited Liability)

(Stock code: 316)

ANNOUNCEMENT OF INTERIM RESULTS

FOR THE SIX MONTHS ENDED 30TH JUNE 2016

The Directors of Orient Overseas (International) Limited (the “Company”) announce the unaudited interim

results of the Company and its subsidiaries (the “Group”) for the six months ended 30th June 2016, which have

been reviewed in accordance with Hong Kong Standard on Review Engagements 2410 by our auditor,

PricewaterhouseCoopers whose unqualified review report is included in the Interim Report to be sent to

Shareholders.

Condensed Consolidated Profit and Loss Account (unaudited)

For the six months ended 30th June 2016

US$'000 Note 2016 2015

Revenue 5 2,560,503 3,044,178

Operating costs (2,411,668) (2,613,174)

Gross profit 148,835 431,004

Fair value gain from an investment property 9,724 9,830

Other operating income 56,968 51,918

Other operating expenses (234,186) (221,768)

Operating (loss)/profit 6 (18,659) 270,984

Finance costs 8 (39,594) (30,097)

Share of profits of joint ventures 3,405 2,677

Share of profits of associated companies 7,386 9,225

(Loss)/profit before taxation (47,462) 252,789

Taxation 9 (9,197) (14,146)

(Loss)/profit for the period (56,659) 238,643

(Loss)/profit attributable to :

Equity holders of the Company (56,659) 238,632

Non-controlling interests - 11

(56,659) 238,643

(Loss)/earnings per ordinary share (US cents)

Basic and diluted 11 (9.1) 38.1

- 2 -

Condensed Consolidated Statement of Comprehensive Income (unaudited)


US$'000 2016 2015

(Loss)/profit for the period (56,659) 238,643

Other comprehensive income:

Item that will not be subsequently reclassified to profit or loss:

Actuarial (losses)/gains on defined benefit schemes (11,313) 5,896

Items that may be reclassified subsequently to profit or loss:

Available-for-sale financial assets

- Change in fair value (24,956) (18,300)

Currency translation adjustments

- Foreign subsidiaries (1,426) (1,153)

- Associated companies (2,973) 153

- Joint ventures (215) 5

Total items that may be reclassified subsequently to profit or loss (29,570) (19,295)

Other comprehensive loss for the period, net of tax (40,883) (13,399)

Total comprehensive (loss)/income for the period (97,542) 225,244

Total comprehensive (loss)/income attributable to:



(97,542) 225,244

- 3 -

CO NDENSED CO NSO LIDATED BALANCE SHEET (unaudited)

As at 30th June 2016

30th June 31st December

US$'000 Note 2016 2015

ASSETS

Non-current assets

Property, plant and equipment 12 5,970,260 6,020,744

Investment property 12 210,000 200,000

Prepayments of lease premiums 12 8,212 8,462

Joint ventures 10,447 8,887

Associated companies 138,298 145,249

Intangible assets 12 55,951 55,646

Deferred taxation assets 3,948 3,765

Pension and retirement assets - 7,855

Derivative financial instruments 14 - 1,507

Restricted bank balances 213 980

Available-for-sale financial assets 117,544 127,998

Held-to-maturity investments 200,232 217,004

Other non-current assets 13,216 16,635

6,728,321 6,814,732

Current assets

Inventories 75,348 72,481

Debtors and prepayments 13 494,808 499,409

Amounts due from joint ventures - 2,871

Amounts due from associated companies 6,489 -

Held-to-maturity investments 34,488 19,074

Portfolio investments 309,247 295,894

Derivative financial instruments 14 935 147

Tax recoverable 11,380 10,942

Restricted bank balances 1,208 443

Cash and bank balances 1,757,229 2,015,581

2,691,132 2,916,842

Total assets 9,419,453 9,731,574

EQ UITY

Equity holders

Share capital 15 62,579 62,579

Reserves 16 4,625,785 4,734,931

Total equity 4,688,364 4,797,510

LIABILITIES

Non-current liabilities

Borrowings 18 3,434,390 3,663,100

Deferred taxation liabilit ies 65,674 62,041

Pension and retirement liabilit ies 2,077 109

3,502,141 3,725,250

Current liabilities

Creditors and accruals 17 652,961 750,378

Amounts due to joint ventures 8,459 11,037

Borrowings 18 563,341 438,619

Derivative financial instruments 14 - 5,316

Current taxation 4,187 3,464

1,228,948 1,208,814

Total liabilities 4,731,089 4,934,064

Total equity and liabilities 9,419,453 9,731,574

- 4 -

CONDENSED CONSOLIDATED CASH FLOW STATEMENT (unaudited)


US$'000 2016 2015

Cash flows from operating activities

Cash generated from operations 17,959 316,771

Interest and financing charges paid (36,190) (29,393)

Hong Kong profits tax paid (23) -

Overseas taxes paid (4,933) (8,864)

Net cash (used in)/from operating activities (23,187) 278,514

Cash flows from investing activities

Sale and redemption on maturity of non-current assets 7,800 76,847

Purchase of property, plant and equipment (144,544) (246,936)

Purchase of other non-current assets (11,263) (7,274)

Increase in portfolio investments (5,964) (69,632)

Net change in amounts due to joint ventures 293 1,704

Increase in restricted bank balances and bank deposits

maturing more than three months (377,405) (353,489)

Interest received 18,383 17,892

Dividends and distribution received from investments 11,255 10,639

Dividend received from a joint venture and associated companies 6,505 6,786

Net cash used in investing activities (494,940) (563,463)

Cash flows from financing activities

Drawdown of loans 264,688 325,800

Repayment of loans (310,070) (208,464)

Capital element of finance lease rental payments (65,267) (125,982)

Dividends paid to equity holders of the Company (11,604) (21,400)

Net cash used in financing activities (122,253) (30,046)

Net decrease in cash and cash equivalents (640,380) (314,995)

Cash and cash equivalents at beginning of period 1,737,511 1,942,822

Currency translation adjustments 4,295 (1,440)

Cash and cash equivalents at end of period 1,101,426 1,626,387

Analysis of cash and cash equivalents

Bank balances and deposits maturing within three

months from the date of placement 1,101,766 1,626,387

Bank overdrafts (340) -

1,101,426 1,626,387

- 5 -

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

(unaudited)


Non-

Share controlling

US$'000 capital Reserves Sub-total interests Total

Balance at 31st December 2015 62,579 4,734,931 4,797,510 - 4,797,510

Total comprehensive loss

for the period - (97,542) (97,542) - (97,542)

Transaction with owners

2015 final dividend - (11,604) (11,604) - (11,604)

Balance at 30th June 2016 62,579 4,625,785 4,688,364 - 4,688,364

Balance at 31st December 2014 62,579 4,572,173 4,634,752 - 4,634,752

Total comprehensive income

for the period - 225,233 225,233 11 225,244


2014 final dividend - (21,400) (21,400) - (21,400)

Balance at 30th June 2015 62,579 4,776,006 4,838,585 11 4,838,596

Equity holders

- 6 -

Notes to the Interim Financial Information

1. General Information

Orient Overseas (International) Limited (the “Company”) is a limited liability

company incorporated in Bermuda. The address of its registered office is Clarendon

House, 2 Church Street, Hamilton HM11, Bermuda and the principal office is 33rd

floor, Harbour Centre, No. 25 Harbour Road, Wanchai, Hong Kong.

The Company has its listing on the Main Board of The Stock Exchange of Hong

Kong Limited.

This interim financial information is presented in US dollars, unless otherwise stated.

This interim financial information was approved by the Board of Directors on 5th

August 2016.

2. Basis of Preparation

The interim financial information has been prepared in accordance with Hong Kong

Financial Reporting Standards (“HKFRS”). They have been prepared under the

historical cost convention, as modified by the revaluation of investment property,

available-for-sale financial assets, and financial assets and financial liabilities

(including derivative financial instruments) at fair value through profit or loss, which

are carried at fair value and in accordance with Hong Kong Accounting Standard

(“HKAS”) 34 “Interim Financial Reporting” issued by the Hong Kong Institute of

Certified Public Accountants (“HKICPA”).

The accounting policies and methods of computation used in the preparation of the

interim financial information are consistent with those used in the annual

consolidated financial statements for the year ended 31st December 2015 except for

the adoption of amendments to HKFRSs effective for the financial year ending 31st

December 2016.

- 7 -

2. Basis of Preparation (Continued)

The adoption of revised HKFRSs

In 2016, the Group adopted the following amendments and improvements to existing

HKFRSs below, which are relevant to its operations.

Amendments and improvements to existing standards

HKFRSs Annual Improvements 2012 – 2014 Reporting Cycle

HKAS 1 Amendments Disclosure Initiative

HKAS 16 and HKAS 38

Amendments

Classification of Acceptable Methods of Depreciation

and Amortisation

The adoption of the above amendments and improvements to existing HKFRSs do

not have a material impact on the Group.

New standards that are relevant but not yet effective to the Group

New standards

Effective for accounting periods

beginning on or after

HKFRS 9 Financial Instruments 1st January 2018

HKFRS 15 Revenue from Contracts with

Customers

1st January 2018

HKFRS 16 Leases 1st January 2019

The Group has not early adopted the above standards and is not yet in a position to

state whether substantial changes to the Group’s accounting policies and

presentation of financial statements will result.

- 8 -

3. Financial Risk Management

All aspects of the Group’s financial risk management objectives and policies are

consistent with those disclosed in the annual consolidated financial statements for the

year ended 31st December 2015.

3.1 Fair value estimation

The financial instruments that are measured in the balance sheet at fair value, require

disclosure of fair value measurements by level of the following fair value

measurement hierarchy:

Quoted prices (unadjusted) in active markets for identical assets or liabilities

(level 1).

Inputs other than quoted prices included within level 1 that are observable for the

asset or liability, either directly (that is, as prices) or indirectly (that is, derived

from prices) (level 2).

Inputs for the asset or liability that are not based on observable market data (that is,

unobservable inputs) (level 3).

The following table presents the Group's financial assets and liability that are

measured at fair value at 30th June 2016.

US$’000 Level 1 Level 2 Level 3 Total

Assets

Portfolio investments

– Equity securities 42,568 - - 42,568

– Debt securities 258,355 - - 258,355

– Funds and other investments - 8,324 - 8,324

Derivative financial instruments - 935 - 935

Available-for-sale financial

assets

– Listed equity securities 84,972 - - 84,972

– Other investments - - 32,572 32,572

───────── ───────── ───────── ─────────

Total assets 385,895 9,259 32,572 427,726

═════════ ═════════ ═════════ ═════════

- 9 -

3. Financial Risk Management (Continued)

3.1 Fair value estimation (Continued)

The following table presents the Group's financial assets and liability that are

measured at fair value at 31st December 2015.

US$’000 Level 1 Level 2 Level 3 Total

Assets

Portfolio investments

– Equity securities 51,865 - - 51,865

– Debt securities 234,172 - - 234,172

– Funds and other investments - 9,857 - 9,857

Derivative financial instruments - 1,654 - 1,654

Available-for-sale financial

assets

– Listed equity securities 75,962 - - 75,962

– Other investments - - 52,036 52,036

───────── ───────── ───────── ─────────

Total assets 361,999 11,511 52,036 425,546

═════════ ═════════ ═════════ ═════════

Liability

Derivative financial instruments - 5,316 - 5,316

───────── ───────── ───────── ─────────

Total liability - 5,316 - 5,316

═════════ ═════════ ═════════ ═════════

There were no transfers among Levels 1, 2 and 3 during the period.

Specific valuation techniques used to value Levels 2 and 3 financial instruments

include:

Dealer quotes.

The fair value of interest rate swaps is calculated as the present value of the

estimated future cash flows based on observable yield curves.

The fair value of forward foreign exchange contracts is determined using

forward exchange rates at the balance sheet date, with the resulting value

discounted back to present value.

Marketability discount rate derived from management’s judgment is applied to

estimate the fair value of unlisted equity security classified as available-for-sale

financial asset.

- 10 -


3.1 Fair value estimation (Continued)

There were no changes in valuation techniques during the period.

Instruments included in level 3 mainly comprise unlisted equity securities classified

as available-for-sale financial assets.

The following table presents the changes in level 3 instruments:

US$’000

Opening balance at 31st December 2015 52,036

Additions 229

Currency translation adjustments 7

Fair value change recognised in other comprehensive income (19,700)

─────────

Closing balance at 30th June 2016 32,572

═════════

US$’000

Opening balance at 31st December 2014 72,232

Currency translation adjustments (4)

Fair value change recognised in other comprehensive income (18,300)

─────────

Closing balance at 30th June 2015 53,928

═════════

For level 3 instruments, the discount rate used to compute the fair value is 15%. The

higher the discount rate, the lower the fair value.

- 11 -


3.2 Fair value of financial assets and liabilities measured at amortised cost

Carrying amount Fair value

US$’000

30th

June

2016

31st

December

2015

30th

June

2016

31st

December

2015

Non-current bank loans 1,949,012 1,981,561 1,948,666 1,981,774

════════ ════════ ═══════ ════════

Non-current finance lease

obligations

1,485,378

1,681,539

1,517,309

1,691,993

════════ ════════ ═══════ ════════

Held-to-maturity investments 234,720 236,078 249,712 245,101

════════ ════════ ═══════ ════════

The fair values of the following financial assets and liabilities approximate their

carrying amounts:

Debtors and prepayments

Prepayments of lease premiums

Cash and bank balances

Restricted bank balances

Other current financial assets

Creditors and accruals

Borrowings except for those disclosed above

Other current financial liabilities

- 12 -

4. Critical Accounting Estimates and Judgements

Estimates and judgements used are continually evaluated and are based on historical

experience and other factors, including expectations of future events that are believed

to be reasonable under the circumstances. The resulting accounting estimates will,

by definition, seldom equal the related actual results.

The estimates and assumptions applied in the preparation of the interim financial

information are consistent with those used in the annual financial statements for the

year ended 31st December 2015.

5. Revenue

US$'000 2016 2015

Container transport and logistics 2,547,306 3,031,916

Rental income 13,197 12,262

2,560,503 3,044,178

The principal activities of the Group are container transport and logistics.

Revenue comprises turnover which includes gross freight, charter hire, service and

other income from the operation of the container transport and logistics and rental

income from the investment property.

- 13 -

6. Operating (Loss)/Profit

US$'000 2016 2015

Operating (loss)/profit is arrived at after crediting:

Interest income from banks 7,992 9,059

Interest income from held-to-maturity investments 5,881 5,796

Gross rental income from an

investment property 13,197 12,262

Profit on disposal of property, plant

and equipment - 292

Income from available-for-sale

financial assets

- Distribution 3,026 2,502

- Dividend income 22,168 24,749

Net gain on interest rate swap contracts 56 489

Fair value gain on foreign exchange forward contract 1,547 1,818

Gain on bunker price derivative contracts 2,180 -

Portfolio investment income

- Fair value gain (realised and unrealised) 7,389 1,502

- Interest income 5,304 4,594

- Dividend income 394 458

and after charging:

Depreciation

Owned assets 148,655 112,795

Leased assets 48,837 42,663

Operating lease rental expense

Vessels and equipment 140,517 165,739

Terminals and berths 18,511 15,039

Land and buildings 17,636 15,410

Rental outgoings in respect of an

investment property 7,515 7,295

Loss on disposal of property, plant and equipment 1,394 -

Loss on disposal of held-to-maturity investments 74 -

Amortisation of intangible assets 2,584 2,078

Amortisation of prepayments of lease premiums 112 118

Exchange loss 7,666 1,631

- 14 -

7. Key Management Compensation

US$'000 2016 2015

Salaries and other short-term employee benefits 2,819 2,325

Estimated money value of other benefits 54 -

Pension costs - defined contribution plans 261 216

3,134 2,541

The Group usually determines and pays discretionary bonuses to employees

(including Directors) around April/May each year based on the actual financial

results of the Group for the preceding year. The discretionary bonuses represent

actual payments to the Directors and individuals during the current financial period

in relation to performance for the preceding year.

8. Finance Costs

US$'000 2016 2015

Interest expense (42,598) (33,454)

Amount capitalised under assets 3,004 3,357

Net interest expense (39,594) (30,097)

9. Taxation

US$'000 2016 2015

Current taxation

Hong Kong profits tax (109) (127)

Overseas taxation (5,365) (11,089)

(5,474) (11,216)

Deferred taxation

Hong Kong profits tax (24) -

Overseas taxation (3,699) (2,930)

(3,723) (2,930)

(9,197) (14,146)

Taxation has been provided at the appropriate tax rates prevailing in the countries in

which the Group operates on the estimated assessable profits for the period. These

rates range from 10% to 47% (2015: 10% to 47%) and the rate applicable for Hong

Kong profits tax is 16.5% (2015: 16.5%).

- 15 -

10. Interim Dividend

US$'000 2016 2015

Interim dividend of US cents nil

(2015 : US9.6 cents) per ordinary share - 60,076

The Board of Directors does not recommend the payment of an interim dividend for

2016 (2015 : US9.6 cents per ordinary share).

11. (Loss)/Earnings Per Ordinary Share

The calculation of basic and diluted (loss)/earnings per ordinary share is based on

the Group’s (loss)/profit attributable to equity holders of the Company divided by

the number of ordinary shares in issue during the period.

The basic and diluted (loss)/earnings per ordinary share are the same since there are

no potential dilutive shares.

US$'000 2016 2015

Number of ordinary shares in issue (thousands) 625,793 625,793

Group’s (loss)/profit attributable to:



(56,659) 238,643

(Loss)/earnings per share attributable to

equity holders of the Company (US cents) (9.1) 38.1

- 16 -

12. Capital Expenditure

Property, Prepayments

plant and Investment of lease Intangible

US$'000 equipment property premiums assets Total

Net book amounts:

Balance at 31st December 2015 6,020,744 200,000 8,462 55,646 6,284,852

Currency translation adjustments (743) - (138) - (881)

Fair value gain - 9,724 - - 9,724

Additions 149,478 276 - 2,889 152,643

Disposals (1,727) - - - (1,727)

Depreciation and amortisation (197,492) - (112) (2,584) (200,188)

Balance at 30th June 2016 5,970,260 210,000 8,212 55,951 6,244,423

Balance at 31st December 2014 5,608,929 180,000 9,109 48,578 5,846,616

Currency translation adjustments (176) - 7 - (169)

Fair value gain - 9,830 - - 9,830

Additions 492,751 170 - 6,098 499,019

Disposals (2,536) - - - (2,536)

Depreciation and amortisation (155,458) - (118) (2,078) (157,654)

Classified as asset held for sale (51,719) - - - (51,719)

Balance at 30th June 2015 5,891,791 190,000 8,998 52,598 6,143,387

13. Debtors and Prepayments

30th 31st

June December

US$'000 2016 2015

Trade receivables 291,588 318,731

Less: provision for impairment (11,610) (9,548)

Trade receivables - net 279,978 309,183

Other debtors 80,212 80,850

Other prepayments 122,835 97,002

Utility and other deposits 11,783 12,374

494,808 499,409

- 17 -

13. Debtors and Prepayments (Continued)

Trade receivables are normally due for payment on presentation of invoices or

granted with an approved credit period ranging mainly from 10 to 30 days. Debtors

with overdue balances are requested to settle all outstanding balances before any

further credit is granted. The ageing analysis of the Group’s trade receivables, net

of provision for impairment, prepared in accordance with the due dates of invoices,

is as follows:

30th 31st

June December

US$'000 2016 2015

Below one month 249,074 276,684

Two to three months 22,554 25,900

Four to six months 5,659 4,673

Over six months 2,691 1,926

279,978 309,183

14. Derivative Financial Instruments

30th 31st

June December

US$'000 2016 2015

Assets

Non-current assets

Interest rate swap contracts - 1,507

Current assets

Bunker price derivative contracts 935 -

Interest rate swap contract - 147

935 147

935 1,654

Liabilities

Current liabilities

Foreign exchange forward contract - (3,157)

Bunker price derivative contracts - (2,159)

- (5,316)

- 18 -

15. Share Capital

30th 31st

June December

US$'000 2016 2015

Authorised :

900,000,000 ordinary shares of US$0.10 each 90,000 90,000

65,000,000 convertible redeemable preferred

shares of US$1 each 65,000 65,000

50,000,000 redeemable preferred shares

of US$1 each 50,000 50,000

205,000 205,000

Issued and fully paid :

625,793,297 (2015: 625,793,297)

ordinary shares of US$0.10 each 62,579 62,579

- 19 -

16. Reserves

Available-for-sale Foreign

Capital financial assets exchange

Share Contributed redemption revaluation translation Retained

US$'000 premium surplus reserve reserve reserve profit Total

Balance at 31st December 2015 172,457 88,547 4,696 40,910 44,302 4,384,019 4,734,931

Total comprehensive loss for the period - - - (24,956) (4,614) (67,972) (97,542)


2015 final dividend - - - - - (11,604) (11,604)

Balance at 30th June 2016 172,457 88,547 4,696 15,954 39,688 4,304,443 4,625,785


Total comprehensive income/(loss) for the period - - - (18,300) (995) 244,528 225,233


2014 final dividend - - - - - (21,400) (21,400)

Balance at 30th June 2015 172,457 88,547 4,696 51,074 60,405 4,398,827 4,776,006

Total comprehensive income/(loss) for the period - - - (10,164) (16,103) 45,371 19,104


2015 interim dividend - - - - - (60,179) (60,179)


- 20 -

17. Creditors and Accruals

30th 31st

June December

US$'000 2016 2015

Trade payables 161,620 193,401

Other creditors 75,159 108,928

Accrued expenses 357,825 377,630

Deferred revenue 58,357 70,419

652,961 750,378

The ageing analysis of the Group’s trade payables, prepared in accordance with

dates of invoices, is as follows:

30th 31st

June December

US$'000 2016 2015

Below one month 126,036 129,801

Two to three months 30,392 50,395

Four to six months 2,521 7,799

Over six months 2,671 5,406

161,620 193,401

- 21 -

18. Borrowings

30th 31st

June December

US$'000 2016 2015

Non-current

Bank loans

- Secured 1,724,224 1,748,392

- Unsecured 224,788 233,169

Finance lease obligations 1,485,378 1,681,539

3,434,390 3,663,100

Current

Bank overdrafts, unsecured 340 14

Bank loans

- Secured 286,970 297,808

- Unsecured 14,471 14,559

Finance lease obligations 261,560 126,238

563,341 438,619

Total borrowings 3,997,731 4,101,719

- 22 -

19. Commitments

(a) Capital commitments – Property, plant and equipment

30th June 31st December

US$'000 2016 2015

Contracted but not provided for 658,407 778,885

(b) Operating lease commitments

The future aggregate minimum lease rental expenses under non-cancellable

operating leases are payable in the following years :

Vessels and Land and

US$'000 equipment buildings Total

As at 30th June 2016

2016/17 178,863 31,506 210,369

2017/18 106,502 19,308 125,810

2018/19 74,935 14,347 89,282

2019/20 66,164 12,080 78,244

2020/21 59,715 11,086 70,801

2021/22 onwards 42,341 30,871 73,212

528,520 119,198 647,718

As at 31st December 2015

2016 194,705 34,708 229,413

2017 126,409 26,150 152,559

2018 89,334 15,441 104,775

2019 67,212 12,955 80,167

2020 64,755 11,089 75,844

2021 onwards 69,759 36,548 106,307

612,174 136,891 749,065

- 23 -

19. Commitments (Continued)

(b) Operating lease commitments (Continued)

The Group entered into the Preferential Assignment Agreement (the

“Agreement”) with the City of Long Beach (“COLB”) for the use of the

Middle Harbor Terminal (the “Terminal”) in Long Beach, California USA on

30th April 2012. The term of the Agreement is 40 years commencing on 1st

July 2011. As of 30th June 2016, the Group signed several Amendments to

Preferential Assignment Agreement (the “Amendment”) with COLB, which

has amended certain terms within Agreement and has altered the expected

guaranteed minimum annual compensation to be made for the relevant period

of the lease term.

The guaranteed minimum annual compensation is computed based on the

guaranteed minimum annual compensation per acreage (ranging from

US$180,000 to US$270,000 in the first 5 years of the lease) multiplied by the

number of acreages of the Terminal delivered, which is subject to mutual

agreement between the Group and COLB along the Terminal construction

and based on the milestones set out in the Agreement. The construction is

expected to be completed by 2020 and the estimated number of acreages of

the Terminal upon completion is estimated to be approximately 304.7

acreages. As of 30th June 2016, the acreages of the Terminal used to

determine the rental is 193.0 acreages (31st December 2015: 98.8 acreages).

The Group and COLB renegotiate the guaranteed minimum annual

compensation per acre every 5 years which will not be less than the highest

guaranteed minimum annual compensation in the previous 5 years.

20. Segment Information

The principal activities of the Group are container transport and logistics. Container

transport and logistics include global containerised shipping services in major trade

lanes, covering Trans-Pacific, Trans-Atlantic, Asia/Europe, Asia/Australia and

Intra-Asia trades, and integrated services over the management and control of

effective storage and flow of goods. In accordance with the Group’s internal

financial reporting provided to the chief operating decision-makers, who are

responsible for allocating resources, assessing performance of the operating

segments and making strategic decisions, the reportable operating segments are

container transport and logistics and others.

- 24 -

20. Segment Information (Continued)

Operating segments

The segment results for the six months ended 30th June 2016 are as follows:

Container

transport

US$'000 and logistics Others Elimination Group

Revenue 2,547,306 13,524 (327) 2,560,503

Operating (loss)/profit (76,320) 57,661 - (18,659)

Finance costs (39,594) - - (39,594)

Share of profits of joint ventures 3,405 - - 3,405

Share of profits of associated companies 7,386 - - 7,386

(Loss)/profit before taxation (105,123) 57,661 - (47,462)

Taxation (3,981) (5,216) - (9,197)

(Loss)/profit for the period (109,104) 52,445 - (56,659)

Capital expenditure 152,367 276 - 152,643

Depreciation 197,492 - - 197,492

Amortisation 2,696 - - 2,696

- 25 -


Operating segments (Continued)

The segment results for the six months ended 30th June 2015 are as follows:

Container

transport

US$'000 and logistics Others Elimination Group

Revenue 3,031,916 12,739 (477) 3,044,178

Operating profit 210,466 60,518 - 270,984

Finance costs (30,097) - - (30,097)

Share of profits of joint ventures 2,677 - - 2,677

Share of profits of associated companies 9,225 - - 9,225

Profit before taxation 192,271 60,518 - 252,789

Taxation (8,696) (5,450) - (14,146)

Profit for the period 183,575 55,068 - 238,643

Capital expenditure 498,849 170 - 499,019

Depreciation 155,457 1 - 155,458

Amortisation 2,196 - - 2,196

- 26 -


Operating segments (Continued)

The segment assets and liabilities as at 30th June 2016 are as follows:

Container

transport

US$'000 and logistics Others Group

Segment assets 6,841,738 2,422,481 9,264,219

Joint ventures 10,447 - 10,447

Associated companies 144,787 - 144,787

Total assets 6,996,972 2,422,481 9,419,453

Segment liabilities (4,659,338) (71,751) (4,731,089)

The segment assets and liabilities as at 31st December 2015 are as follows:

Container

transport

US$'000 and logistics Others Group

Segment assets 6,947,634 2,626,933 9,574,567

Joint ventures 11,758 - 11,758

Associated companies 145,249 - 145,249

Total assets 7,104,641 2,626,933 9,731,574

Segment liabilities (4,865,720) (68,344) (4,934,064)

The segment of “Others” primarily includes assets and liabilities of property and

corporate level activities. Assets under the segment of “Others” consist primarily of

investment property, available-for-sale financial assets, held-to-maturity investments

and portfolio investments together with cash and bank balances that are managed at

corporate level. Liabilities under the segment of “Others” primarily include

creditors and accruals and deferred taxation liabilities related to corporate level

activities.

- 27 -


Geographical information

The Group’s two reportable operating segments operate in four main geographical

areas, even though they are managed on a worldwide basis. Freight revenues from

container transport and logistics are analysed based on the outbound cargoes of each

geographical territory.

The Group’s total assets mainly include container vessels and containers which are

primarily utilised across geographical markets for shipment of cargoes throughout

the world. Accordingly, non-current assets by geographical areas are not presented.

Capital

US$'000 Revenue expenditure

Six months ended 30th June 2016

Asia 1,737,132 13,589

North America 375,330 26,626

Europe 365,534 55

Australia 82,507 4

Unallocated* - 112,369

2,560,503 152,643

Six months ended 30th June 2015

Asia 2,014,797 7,608

North America 434,351 22,655

Europe 506,067 119

Australia 88,963 14

Unallocated* - 468,623

3,044,178 499,019

* Unallocated capital expenditure comprises additions to vessels, dry-docking,

containers and intangible assets.

- 28 -

Results for First Half 2016

For the first six months of 2016 Orient Overseas (International) Limited and its

subsidiaries (the “Group”) recorded a loss attributable to equity holders of US$56.7

million compared with US$238.6 million profit for the corresponding period of 2015.

The loss attributable to equity holders for the first half of 2016 included investment

income of US$25.2 million from Hui Xian and a net fair value gain of US$9.7 million on

Wall Street Plaza revaluation.

Review of Operations

Market conditions in the first six months of 2016 have been difficult for the industry.

Weak economic growth in many key economies has constrained consumer demand, and

global uncertainty seems to have given rise to some level of slowdown in corporate and

government investment. Consumer demand and investment are the key drivers of demand

in our industry, and in this context it is no great surprise that cargo volume growth has

been uninspiring.

The recent UK referendum might also lead to some further delay in investment processes

in the short term, at least in Europe, especially if negotiations between the UK and EU on

their future trading relationship prove to be protracted. In addition, violence in Europe

and geopolitical conditions in the Middle East and South China sea have injected another

layer of cautiousness to sustained corporate activities and investment.

In addition to global economic uncertainty, the industry continues to face a supply and

demand imbalance. A combination of weak global growth on the demand side and

excessive shipping capacity growth, exasperated by the industry’s relentless pursuit for

scale and efficiency in recent years, has compounded the over capacity. The result is a

weak freight market where rates fell to levels that at times failed to cover voyage costs in

selected trade lanes.

OOIL INTERIM RESULTS ANALYSIS

(US$’000) 2016 2015

(Loss)/Profit before tax from operating activities (82,377) 215,710

Investment income from Hui Xian 25,191 27,249

Revaluation of Wall Street Plaza 9,724 9,830

(Loss)/Profit Before Tax for the Period Ended 30th June (47,462) 252,789

Taxation (9,197) (14,146)

Non-controlling Interests - (11)

(Loss)/Profit Attributable to Equity Holders (56,659) 238,632

- 29 -

The challenging market conditions seen at the end of 2015 continued for the first half of

2016. A combination of weak global growth and the continued delivery of significant

numbers of large vessels generated an unfavourable supply and demand balance for the

industry. While there was some improvement in volumes as the period progressed and

although freight rates appear to have recovered from their lows, the outcome was

disappointing.

Compared to the first half of 2015, OOCL liner liftings increased by 5% and load factor

by 1%, but revenue dropped by 17%. Average revenue levels in some trade lanes reached

new post-Global Financial Crisis lows, with an average revenue per TEU drop of 21% in

the first half.

Trans-Pacific liftings increased by 14% year-on-year, whereas the average revenue per

TEU decreased by 26%. Recognising the importance of this trade to the group, and the

coming on line of the first phase of our terminal at Long Beach, OOCL managed to

achieve an increase in liftings in the Trans-Pacific trade.

Asia-Europe westbound lifting dropped 1% when compared to the same period last year,

and revenue per TEU fell by 32%, due to the unfavourable supply/demand balance. Slow

growth in Europe, in combination with the time necessary for the market to absorb the

number of large new vessels being introduced to service, kept the market context difficult

for most of the period. With some improvement on the demand side and in freight rates, it

is hoped that the Asia-Europe may now be exiting its extended period of being under such

pressure. However, many uncertainties remain, not least the outcome of Brexit

negotiations.

Liftings of the Intra-Asia & Australasia Trade increased by 4% compared to the first half

of last year, and average revenue per TEU was 19% lower. Low (or at least lower) growth

in certain parts of the region was a key contributor to this, even if certain areas, notably

South East Asia, continued to perform well. The relative weakness of the major East-

West trades also drove the downward trend in this market. If the East-West trades have

indeed started to recover, then we would anticipate that regional sub assembly of goods

ultimately for export to the US or Europe will begin to generate improvement within Asia

but the speed of any such recovery is unknown.

Trans-Atlantic liftings increased by 8%, with average revenue per TEU 15% lower. The

trade performed well compared to the rest of the industry, not least driven by the strong

USD and the gradual improvement in the US economy improving westbound cargo.

Although fuel costs have risen considerably since the remarkable lows of the first few

months of 2016, they remain far lower than in recent years, and provide some element of

cushion against the unsustainably low freight rates that have been seen in some trades.

The average price of bunker recorded by OOCL in the first half of 2016 was US$186 per

ton compared with US$352 per ton for the corresponding period in 2015. In the first half

of 2016, fuel costs decreased by 41% when compared to the corresponding period in

2015.

- 30 -

In the first half of 2016, no new-build vessels were delivered, and no new orders were

placed by the Group. For six 20,000 TEU class new-build vessels contracted with

Samsung Heavy Industries Co. Ltd. in South Korea, they are expected to be completed by

the end of year 2017.

OOCL Logistics revenue for the first half of 2016 dropped by 14% compared with the

same period last year. Due to challenging global market conditions, revenue from Supply

Chain Management Service and Import/Export Services each dropped by 19%.

Competition in the transportation sector in China remains fierce, but we were able to

counter the revenue drop in transportation with the new long-term leased warehouses in

China, resulting in a relatively flat revenue position in the Domestic Logistics business.

OOCL Logistics is a business focus for the Group. The combination of a soft market

environment, intense competition, and changing trade patterns brought about both lower

margins and service challenges for the industry. OOCL logistics continues to focus on

building the underlying business, remaining profitable, and working towards becoming a

steady and meaningful contributor to the Group’s bottom line in the future.

In this challenging environment, our trademark attention to costs and to operational

efficiency are more important than ever. This consistent approach over many years,

implemented by our experienced staff, coupled with ongoing investment in IT to deliver

superior customer service, yield management and cost control, will help ensure that

OOCL is well placed to face up to the challenges of the current market and to be ready for

the market upturn when it comes.

The Group’s property investments include its long-standing ownership of Wall Street

Plaza located in New York. Wall Street Plaza continues to record steady results and based

on an independent valuation, has been re-valued upwards by US$10 million as at 30th

June 2016 to reflect an assessed market value of US$210 million. After offsetting a total

of US$0.3 million improvement to the building spent in the first six months of the year,

the net fair value gain for the first half of 2016 was US$9.7 million.

The Group continues its investment in Beijing Oriental Plaza directly through holdings in

the Hui Xian REIT and indirectly through Hui Xian Holdings Ltd., which holds units in

the Hui Xian REIT. In the first half of 2016, Hui Xian Holdings declared a cash dividend

and dividend in specie to its shareholders, of which the Group’s shares amounted to

US$22.2 million. In addition, the Group also received a distribution of US$3.0 million

from its direct holding of Hui Xian REIT.

The investments in Wall Street Plaza and Hui Xian are both historical in nature and the

Group currently has no intention of further investment in property other than that in

relation to the operations of the container transportation and logistics business.

- 31 -

Looking Forward

Looking ahead, notwithstanding the fact that there have been some tonnage withdrawals

and pockets of volume growth in selected trade lanes, if deployed capacity continues to be

substantially in excess of demand, the second half of 2016 will be challenging and

difficult.

The industry continues to face a supply and demand imbalance. While the orderbook as a

percentage of existing fleet is anticipated to drop to 6.7% and 5.5% respectively in 2017

and 2018, the challenge for the next half decade is on the demand side. The world

economy seems uninspiring at best. The US may have passed its most difficult period in

this cycle, and China will likely avoid a hard landing. Even if Europe finds its footing in

the aftermath of Brexit, the world may very well need to adjust to a “new normal” where

unexciting growth and a low interest environment become the norm, at least for a half

decade. In the mean time, the polarisation of domestic politics, the rise of populism, and

the tendency towards “turning inwards” for many nations may also translate into a slow

down in the velocity of globalization.

In this difficult environment, it is critical for carriers to focus on ensuring the ability to

deliver superior service and the most cost effective way possible. Our new alliance

platform with like-minded partners, our newbuilding vessels which will be deployed in

2017, our investment in information technology as a tool to transform decision making,

and our port facility redevelopment project in Long Beach, California are all critical parts

of our effort to further our efficiency gains, enhance our overall competitiveness, and

protect our ability to deliver industry-leading operating margins. The Group balance sheet

remains one of the strongest in the industry, and is an important element in our ability to

retain flexibility and initiative. We continue to be deliberate in our efforts to balance the

need for a strong and liquid balance sheet, necessary in a capital intensive business, with

an industry-competitive shareholder return.

The first half of 2016 was disappointing for OOIL. We expect continued challenges given

the global landscape. However, we remain confident that our prudent and deliberate

management approach will lead the Group through the challenging times. Our customer

base remains solid, and our business operations continue to benefit from our focus on cost

and on efficiency, helped enormously by our ongoing investment in information

technology. My colleagues and I remain committed to ensuring that the Group is well

positioned for the future and continues to be one of the highest performing in the industry.

- 32 -

Interim Dividend

The Board of Directors of the Company (the “Board”) has resolved not to declare the

payment of an interim dividend for the six months ended 30th June 2016.

Purchase, Sale or Redemption of Shares

During the six-month period ended 30th June 2016, neither the Company nor any of its

subsidiaries has purchased, sold or redeemed any of the Company’s shares.

Pre-emptive Rights

No pre-emptive rights exist under Bermudan law in relation to the issue of new shares by

the Company.

Corporate Governance

Compliance with the Corporate Governance Code

The Board and management of the Company are committed to maintaining high standards

of corporate governance and the Company considers that effective corporate governance

makes an important contribution to corporate success and to the enhancement of

shareholder value.

The Company has adopted its own corporate governance code (the “CG Code”), which in

addition to applying the principles as set out in the Corporate Governance Code and

Corporate Governance Report (the “SEHK Code”) contained in Appendix 14 to the Rules

Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the

“Listing Rules”), also incorporates and conforms to local and international best practices.

The CG Code sets out the corporate governance principles applied by the Group and is

constantly reviewed to ensure transparency, accountability and independence.

Throughout the period from 1st January 2016 to 30th June 2016, the Company complied

with the SEHK Code, save for the following:-

there was no separation of the roles of Chairman and Chief Executive Officer of

the Company. Mr. TUNG Chee Chen currently assumes the roles of both

Chairman and Chief Executive Officer of the Company. The executive members

of the Board currently consist of chief executive officer of the principal division of

the Group and there is an effective separation of the roles between the chief

executive of its principal division and the Chief Executive Officer of the Company.

The Board considers that further separation of the roles of the Chief Executive

Officer and Chairman would represent duplication and is not necessary for the

time being.

- 33 -

Securities Transactions by Directors

The Company has adopted its own code of conduct regarding securities transactions by

Directors on terms no less exacting than the required standard set out in the Model Code

for Securities Transactions by Directors of Listed Issuers (the “Model Code”) contained in

Appendix 10 to the Listing Rules.

All Directors have confirmed, following specific enquiry by the Company, that they have

fully complied with the required standards set out in both the Company’s own code and

the Model Code throughout the period from 1st January 2016 to 30th June 2016.

Publication of Results Announcement and Interim Report

This interim results announcement is published on the websites of The Stock Exchange of

Hong Kong Limited (“HKEx”) at http://www.hkexnews.hk and the Company at

http://www.ooilgroup.com. The 2016 Interim Report will be published on the HKEx’s

website and the Company’s website and will be despatched to the shareholders of the

Company on or around 1st September 2016.

Employee Information

As at 30th June 2016, the Group had 9,942 full-time equivalent employees. Salary and

benefit levels are maintained at competitive levels and employees are rewarded on a

performance-related basis within the general policy and framework of the Group’s salary

and discretionary bonus schemes. These schemes, based on the performance of the

Company and individual employees, are regularly reviewed. Other benefits are also

provided including medical insurance and retirement funds. In support of the continuous

development of individual employees, training and development programmes are offered

for different levels of employee. Social and recreational activities are arranged for our

employees around the world.

Directors

As at the date of this announcement, our Executive Directors are Messrs. TUNG Chee

Chen, TUNG Lieh Cheung Andrew and TUNG Lieh Sing Alan; our Non-Executive

Director is Professor Roger KING; and our Independent Non-Executive Directors are Mr.

Simon MURRAY, Mr. CHOW Philip Yiu Wah, Professor WONG Yue Chim Richard, Mr.

CHENG Wai Sun Edward and Mr. KWOK King Man Clement.

http://www.hkexnews.hk/

http://www.ooilgroup.com/

- 34 -

Forward Looking Statements

This announcement contains forward looking statements. Statements which are not of

historical facts, including statements of the Company’s beliefs and expectations, are

forward looking statements. They are based upon current plans, estimates and projections

and, therefore, no undue reliance should be placed upon them. Forward looking

statements are correct only as of the day on which they are made. The Company has no

obligation and does not undertake to update any of them publicly in the light of fresh

information or of future events. Forward looking statements contain inherent risks,

uncertainties and assumptions. The Company warns that should any of these risks or

uncertainties ever materialise or that any of the assumptions should prove incorrect or

should any number of important factors or events occur or not occur, then the actual

results of the Company may differ materially from those either expressed or implied in

any of these forward looking statements.

On behalf of the Board

Orient Overseas (International) Limited

TUNG Chee Chen

Chairman

Hong Kong, 5th August 2016

† For identification purpose only

Website : http://www.ooilgroup.com

http://www.ooilgroup.com/

(loss)/profit before taxation (47,462) 7,386 252,789 9,225 ... · taxation has been provided at the...

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